Ep. 17 – Buying Real Estate at Foreclosure

Matthew Maschler:
Welcome to the Real Estate Finder podcast. I’m Matthew Maschler, the real estate finder of Florida Real Estate Broker.
Staci Garcia:
And I’m Stacey Garcia, also a real estate
Matthew Maschler:
Finder. And we’re with Signature Real Estate Finder, LLCA division of the signature real estate companies here in Florida. So there’s a topic I’ve been meaning to discuss and had an idea this morning. I asked Stacy if we discussed it and she said we hadn’t yet. So I want to talk today about foreclosures. We had recently, one of your clients recently bought ad Foreclosure sale. Yep. Last week. Alright, so there’s a lot of confusion about foreclosures and a lot of questions that I get. And very often a customer will call me up and say that they want to buy a foreclosure, and I want to clear up what some of these words mean since I was very little, was very literal with words. And that’s what made everybody said, Hey Matt, you should be a lawyer when you grow up. And I was just confused and I wanted to know what words mean and needed to be able to have conversations with people.
But it becomes a little bit smart, ay, when you’re a kid, right? Nobody wants to buy a foreclosure, right? People want to buy a house and they want to get a good deal on the house. And so when someone says, I want to buy a foreclosure, what they mean is, I’d like to buy a house and I’d like to pay less than market rate. So let’s talk about what a foreclosure is and what a foreclosure isn’t. When you buy a house, unless you’re paying cash, most people will take a loan from the bank. That loan from the bank is usually called a mortgage, technically it’s called the note, the promissory note. You’re borrowing money with a promise to pay it back and you’re going to sign a promissory note with the bank, with the terms of the loan. People call it a mortgage, but technically it’s not the mortgage unless it’s the mortgage note.
But what a mortgage is, is a security interest. It gives the bank an interest in your property, and it’s not an ownership interest. A lot of people think that the bank owns their property. The bank doesn’t own the property, they only have a lien against the property, and that lien is secured by the mortgage instrument. The pieces of paper that the owner signs giving the bank the lien or the mortgage interest. And it’s like when you buy a car and if you don’t make your car payments, they come and repossess the car. Or in the old days, if you financed your refrigerator with Sears,
If you didn’t pay, they come and repossess the refrigerator. They repossess the car. The car’s the better example. I think people could see it. The bank repossess the car and sells it at auction to the highest bidder. What happens then is at the auction, the bank is the highest bidder. The money goes to the bank for what they’re owed. Now you have a situation where sometimes the bank is given less than they’re owed, right? If someone borrows 30,000 for the car and the car is sold for 20,000, the bank is still owed 10. But if the auction goes for 40,000, the bank doesn’t keep the extra 10. The extra money goes to the next creditor down the line. And if all creditors are paid after the repossession sell, then it goes back to the owner, to the equity owner. And that’s what happens in a foreclosure.
And so I like to tell people that a foreclosure is a lawsuit. A foreclosure isn’t a house, A foreclosure is a lawsuit. When you have a lawsuit, you are suing somebody, right? There’s a plaintiff and a defendant, and it could be a civil lawsuit where you’re suing somebody for money damages. Well, the bank is suing the borrower homeowner, but they’re not suing for money damages. It’s not like if I slipped and fell at Publix, I sue Publix. The bank is suing the homeowner, but not for a dollar amount. They’re suing the homeowner for repossession of the house. So that type of lawsuit is called a foreclosure. So a foreclosure is a lawsuit. A mortgage is a security interest in a house that the bank uses to protect their loan. The actual loan is called a note, a promissory note, mortgage note, a promise to pay back.
So generally, if you have a credit card, you buy something on your credit card and you don’t pay your credit card, then the credit card companies can sue you, but they can’t go after the specific asset that you bought. If you bought that fridge, they can’t go after the fridge and seize the fridge and auction it off. And that’s why that Sears example that I used, if Sears was specifically financing against the refrigerator, they can repossess the refrigerator. The car loan can repossess the car because it’s specifically a lien against that specific item. A general loan, a credit card, that’s an unsecured loan, an unsecured debt. So they can only go after the borrower and then get a judgment against the borrower. So a bank, generally, as long as you pay the bank, they no problem. But if you don’t pay the bank, they’re going to foreclose. So what is a pre-foreclosure? People say the word pre-foreclosure, you could see it online. This house is a pre-foreclosure. Well, a pre-foreclosure is a house where the borrower is in default. They’re in default on the loan. They’re not paying on the loan, but the bank hasn’t filed the foreclosure yet. So sometimes customers, have you ever had a customer call you up to see a pre-foreclosure?
Staci Garcia:
I try to stay away from it. I’m not sure. And I’m glad that we’re having this educational session because of that. There are in the MLS, you can see in the description it’ll say short sale, pre foreclosure, there’s other circumstances. And so in that case, I have had people want to see things and I am not sure whether I want to show it or not. Not sure what exactly you’re getting into. Yeah,
Matthew Maschler:
And the interesting thing is if it’s in the MLS, then it’s for sale, right? So if you see it on a realtor website, then it’s for sale. But if you see it on some of the aggregator websites like Zillow, and it says pre foreclosure or foreclosure, the house may actually not be for sale. Zillow just needs content on their website. So they pick up property records, they see a foreclosure suit and they say, Hey, this house is a foreclosure. Which is why then I get the call that someone wants to buy the foreclosure. Well, you don’t want to buy the foreclosure, you want to buy the house, but the house isn’t for sale. But it’s interesting information. When the investors out there, when they see these pre-foreclosures, the idea is that, okay, well here it’s a seller, really the people that should go after. And when I say pre-foreclosure, I mean that the borrower is in default, but the bank hasn’t foreclosed yet. A lot of people misinterpret pre-foreclosure meaning to be before the foreclosure sale. So let me fast forward. The bank has a lawsuit called a foreclosure. They use their mortgage, that’s their proof. And if they win their lawsuit, what do they get?
They get a judgment amount and then an order of sale. And then the Palm Beach County Sheriff, and it’s not the tax collection, the county clerk conducts the sale. So that is called a foreclosure sale. It used to be done live in person, but now it’s all computerized and all done online. So there’s online bidding. How did you feel about the online bidding process? Was it,
Staci Garcia:
It’s incredibly clear and transparent and easy and fun to watch. I love it. It’s completely addicting and it’s in real time. And I mean, I register as a bidder when I watch so that I can watch it in real time and also see at the end how the bidding went and who was involved. It’s like a horse race. You can see how many people are involved. You can see who purchased it with third party. Everything’s there. But also I like to follow along and since I’m hyper aware of what everything’s worth, I like to see in the end how it turns out.
Matthew Maschler:
So some of the information that’s displayed when you watch these auctions is the final judgment amount, how much the bank, but the bank isn’t always the plaintiff in the foreclosure. Sometimes it’s the second mortgage holder, still the bank I guess. But sometimes you can be paying the first mortgage and not the second, and then the second mortgage holder will bring the foreclosure, or both could be in default, but for whatever reason, the bank doesn’t, the first bank doesn’t bring their foreclosure. So you can have a foreclosure sale by any creditor that has a lien against the property. So a lot of times you see the HOA here in Florida be the plaintiff in a foreclosure sale. So sometimes when you see a very low amount for a final judgment, it’s the HOA that’s foreclosing. You take property subject to any liens, any superior liens. So first mortgage doesn’t get wiped out in an HOA foreclosure.
So that’s actually pretty risky. But so you see the judgment amount and then you also see, before I say that, so let’s say the judgment amount is a hundred thousand dollars. If the auction produces a final bid of $58,000, well then the creditor is still owed $62,000. Sometimes the creditor, the bank can continue to go after the borrower for the difference. In reality, most of the time they don’t. But people have to be aware when they’re in foreclosure situation that the creditor is entitled to go after any deficiencies and then anything above the judgment amount if there’s other creditors, gets distributed through them. And if not, goes actually back to the homeowner. So if the final judgment amount is a hundred thousand dollars, you see where the bidding goes, sometimes the plaintiff will indicate how high they’re willing to bid. So if they’re willing to bid the whole a hundred thousand dollars, it’ll say the plaintiff’s max bid is a hundred thousand dollars.
So you’re not going to get to win the property auction for 30 or $40,000 because the plaintiff, the creditors trying to protect themselves. We lent a hundred thousand against this property. We think the property is worth $150,000. So we’re not going to take $40,000 from the high bidder because then we’re out 60 by saying our high bid is, let’s say they say their high bid is 90 by saying their high bid is 90. They’re saying, okay, if they get $90,000, that’s fine. They’ll take the $90,000, but if not, they’ll take the property. So most of the time, the common result at a foreclosure sale is that the property goes to the judgment creditor. But then sometimes you have buyers and bidders, especially in this market where there’s a lot of equity buyers and bidders successfully winning their bid. And if you win your bid, you get what’s called a certificate of title.
You don’t get a deeded, you get a certificate of title from the clerk, and now you are the owner of the property. But unlike a real estate closing and the seller hears the clerk, the clerk is selling it at auction, you’re the buyer. But unlike a traditional real estate closing, you’re not getting from the seller keys. You don’t have the right to inspect. There’s no final walkthrough. There may be people living in the house, whether it’s the original owner who would now be a tenant or squatters or a million other scenarios of who could possibly be living in the house, but you got the property subject to as is where is you get the property in that condition if it’s, you
Staci Garcia:
Also have to wait. Now I heard yesterday it takes two weeks to get that
Matthew Maschler:
Title, to get that certificate of title. Yeah, they’ll issue a certificate of sale right away, but the receipt with the receipt, and I think that would be enough to contact the utility companies. It’s a good indication if there’s no electric, if there’s no water, it’s a good indication that nobody’s living there. So you can turn the utilities on and secure the property, but if someone’s living there, you’re going to have to go through an eviction. You can’t do self-help. You’re going to have to go through an eviction. It’s not as hard as it is in New York and New Jersey. It’s not as hard to evict someone in Florida of all the things that worry me, that is not something that concerns me. Although for some people, that is the most concerning thing, evicting the tenant or anyone who happens to be in there. But when the market crashed and in the 2000 tens elevens and twelves, and I was doing a lot of these foreclosure sales and fixing and flipping, and it didn’t bother me, we would do cash for keys a lot. I have a funny story about cash for keys. We went to this one property in Quis in Boynton Beach, and by the time we actually got control of the house and secured the house, it had no appliances and we had done cash for keys to get the owner out.
I don’t exactly remember what happened. It’s not like it had appliances. We did cash for keys and then the owner left and screwed us and took the appliances. When we secured the house, there were no appliances. But when we met with the owner and did cash for keys, my maintenance guy basically worked out a deal with him to replace all of the appliances, and we paid him whatever he would’ve gotten at the pawn shop or whatever he was going to do with those appliances. Basically we bought the appliances back.
Staci Garcia:
Did you turn around and put them back in?
Matthew Maschler:
We put the fridge and then we put everything back in. And I think my maintenance guy at the time, I think what made him excited about that project, I don’t think it was the money that we saved, but he knew all the appliances would fit.
You wouldn’t have to measure appliance electric or gas, 36 or 30 inch range. We knew that these appliances would work fine. We put all the appliances back and it was a pretty good deal for us. That house and was that we bought in foreclosure and flipped. So anyway, so you have a foreclosure, which is a lawsuit. If a customer has a real estate agent, when a customer calls me up and says that they want to buy a foreclosure, I’m assuming it means they want to buy a house and they want to get a discount, but if they’re not a sophisticated investor, if they’ve never done it before, it’s very difficult to do these. It takes time. Most of the buyers who are buying at these online foreclosures, and I have to thank my wife Wendy, because I don’t know if it was 10 or 15 years ago when they went online and they stopped being in person. She agreed to come with me to the courthouse. I wanted to see in law school, you learned that these sales happened on the clerk’s steps, on the courthouse steps. So I wanted to go to the courthouse steps and see what one of these auctions looked like, because I knew that it was the last week of it. I knew that
Staci Garcia:
Was, it actually says that on the site. It said in 2008 or something like
Matthew Maschler:
That, 2008 when it did, yeah,
Staci Garcia:
It says that the auction actually happens in person. It doesn’t anymore, but it does it. Yeah.
Matthew Maschler:
And we went and if it’s 2008, and then it was funny, it was a couple years earlier when we lived in New Jersey, we did the same thing. I wanted to see what one of the real estate auctions looked like. And what’s really funny on the one down here, when we went in 2008, some of the bidders they had, instead of using their name, they owned companies. So the company names were hysterical. They had names like Wales Fargo,
And they had other names like PNC Development Corp, and it wasn’t PNC Bank. They used bank initials to make it seem like that way. When they got the title, it would seem like it was a bank that was the person that was evicting these people and going through the process. And I remember Pan-American Lending Corporation, and I’m like, really? You want people to think you’re Pan Am these names that these people came up with? They were just bigger than their britches. I thought That’s funny. So anyway, so what does this mean to a buyer, right? A buyer can with skill and with knowledge and with risk tolerance, buy a property at these foreclosures sales. And we’ve done that for buyers, but it’s difficult because buyers have certain criteria for a property and maybe it doesn’t fit all the criteria of the type of community they want with a pool.
Or when I show a house, I could show a house 15, 16 times, 15 or 16 different houses to a buyer. But if the buyer has less things on their wishlists, like at King’s Point or a Century Village buyer, theoretically they could buy this way because the units are similar enough. And so it could be a good way for this buyer to have, but a lot of times also, I was saying the lender ends up owning the property so that when the bank owns the property after the foreclosure, the bank gets titled to the property, and now that’s REO real estate owned. And people try to contact the bank and it’s very, very difficult to contact the bank. The bank takes their own suite time for when they decide to list it, and when they do list it, sometimes it’s better than others and easier to buy than others.
There’s a great website called Hub Zoo, H-U-B-Z-U, that lists a lot of bank owned properties and takes them to auction. So I’ve had some success there. We recently bought a property on Hub Zoo for a customer in Boca Woods Country Club and got a great deal on it because again, the average retail buyer isn’t on Hub Zoo, but this house was listed in the MLS. We were able to see the property in advance and then bid on the Hub Zoo platform. And it was pretty cool. It took us all the way from bidding to contract to close. Yeah,
Staci Garcia:
The good thing about that one in particular is that, a good example of that one is that that one was listed as a two bedroom, two bathroom, and that was really a three bedroom, two bathroom. And it’s kind of like a bonus when you get to,
Matthew Maschler:
In some communities, there is that third bedroom that’s like an office or a study or a den. And I find it odd that where it really can be a third bedroom and people listed as two or when it really can’t be a third bedroom and people listed as three. Stacey and I, we differ in our opinion, on what can or can’t be a three bedroom look. Technically, someone could live in a living room and now you can count it as bedroom. Someone could live there, someone could live there, someone could live there. For me, and I’m not talking about lifestyle like how I would live, I’m talking about marketing, how I would market a property, because I don’t want to come across too fancy when I say this. So for me, when I’m marketing a property, I’m not going to call something a bedroom unless the person who lives in that bedroom can have reasonable access to a full bathroom, a toilet and a shower without having to go into somebody else’s room or without having to go through the whole house, go through the dining room or through the living room to get to a bathroom.
If someone was going to live in that room and have some kind of access, private access to a toilet and a shower. Sometimes you see something listed as a bedroom, and I’m like, well, and there’s a little powder room right outside, but if someone’s living there and they need to take a shower, so from a marketing point of view, that’s where I draw the line.
Staci Garcia:
Yeah, I definitely don’t, your line is super far away from my very low standard of line, which is if it has a window and a closet, it’s a bedroom and the bathroom could be next door at the next house.
Matthew Maschler:
At the next house,
Staci Garcia:
Yes.
Matthew Maschler:
What if there’s an enclosed room in the backyard? So it’s carpeted, air conditioned window, but if you have to go to the bathroom, you have to go out of the room past the pool and into the sliding door, into the kitchen where there’s a little toilet, still
Staci Garcia:
A bathroom. It’s still
Matthew Maschler:
A bedroom. It’s count that as a bedroom. I do.
Staci Garcia:
Yep, 100%. Yeah.
Matthew Maschler:
See, I had a listing that didn’t sell years and years ago in Boca West because it was listed as a five bedroom. One of the bedrooms was what I just described outside cabana. And the cabana could have been in an office, could have been a gym, could have been a study, but it was listed as a bedroom and the person had to go inside to go to the bathroom, and there was another room that was set up as an office with bookshelves and whatnot. So it didn’t have a closet. To me, it doesn’t necessarily have to have a closet. In Florida, the rule is closet, but in New York and New Jersey, it’s not. There’s houses in the 18 hundreds that were built without closets. You could put a dresser in and there’s, there’s places to put your clothes. It doesn’t have to be a closet. So for me, I don’t require a closet, but this was an office built in shelves and whatnot, and no private access to take a shower, you’d have to walk through past the front door, past the living room, past the dining room to take a shower. So it was listed as a five bedroom, but someone who needed five bedrooms couldn’t possibly buy it. The people would come to see the house and they’d be disappointed. When I took over the listing, we rebranded it as a three bedroom plus office plus cabana. It was more marketable that way. So yeah, so Boca Woods, there was a legit three third bedroom, had the closet
Staci Garcia:
Window. That one doesn’t actually, that one didn’t have a window. Didn’t have a
Matthew Maschler:
Window. Someone could live there. I could
Staci Garcia:
See how does Skylight had a nice area atrium, but still, yeah,
Matthew Maschler:
If someone lived there, if they had their bed and that was their room, they could live there and they can use a toilet and they could take a shower whenever they wanted. There was a full bathroom outside shared by the other bedroom, but it was a reasonable to my mind. So it was under marketed
Staci Garcia:
Definitely. And then also, a lot of people that are in charge of the REO, they’re just agents that get paid per item to list
Matthew Maschler:
Like an insertion fee to list on
Staci Garcia:
The MS, right? So they don’t really know as far as the property goes, they might be getting paid to do a lot of them and their information is not correct. So it pays to try to do as much research as possible because there’s a lot of misinformation on not only the clerk site, but also Hub Zoo and auction.com and every app that I use to do the research, it could say it’s a five three and really it’s a four, two and a half. The information is not necessarily correct. It might not even be correct on square footage or anywhere. You just really got to do a lot of, it takes a lot of time to go through and look up the original information for the house on the property appraisal site. That’s what I do is try to find out to make sure that if there is misinformation, it’s not going in the wrong direction.
Matthew Maschler:
Absolutely. Sometimes I’ll see a property and want to take away a room, sometimes I’ll want to add a room. So it’s interesting, we had that house in the Oaks that had a built out office that had a full bathroom. It wasn’t listed as a bedroom, and it had the opposite problem on a different house in the oaks, and I was able to change the marketing and get the buyer, okay, but on Hub Zoo, so you can take advantage of the fact that the buyers aren’t sophisticated enough that the houses need a little bit of a work. It’s not as clean of a deal, it’s not as move and ready, but you could also take advantage of the fact that the listings, there might be a mistake in the listings. I remember we bought a house at auction in Stone Creek Ranch, a two and a half million dollars house, and there was a bedroom that the person I was bidding against didn’t know about because there was no access from inside the house. You had to go outside past the summer kitchen and go around. It was connected the house, but it didn’t have a door entrance into the house. So it had a little bedroom out there, 250 square feet that the person that I outbid on that property told me afterwards.
It doesn’t tell you. You don’t see the other bidders. You don’t know if there’s one other bidder or 10 other bidders. You just know what the high bidding is. But afterwards, they’ll give you a list of all the bidders and the bid history and you can see their names. And if you use your real name, it’s there. If you come up with an LLC name or a DBA, then that’s how it’s listed. So I know who I bid against at that sale. That was 10 years ago or so over in Stone Creek Ranch bid on a big house. And had he known about that other room, I think he would’ve kept bidding for a little while longer.
Okay, so you have a customer that calls you up, they want to buy foreclosure, and so you have to use a little bit of questioning to really understand what it is that they want. Do they actually want to buy a lawsuit? Do they want to take the bank out and then become the plaintiff themselves and they want to continue the foreclosure against the plaintiff, or do they want to buy at foreclosure sale? A lot of times the foreclosure happened and the properties REO already, and the customer calls you up with a specific property in mind and they say they want to buy a foreclosure, but really what they mean is they want to buy an REO. So you have to figure out exactly what it is you’re talking about. Most of the time I find when someone just calls me up out of the blue and wants to buy a foreclosure, they don’t really know what they’re talking about, not trying to diss them.
It just takes some time to get everybody on the same page. I paused for a second on the subject of pre-foreclosures. It’s interesting information. If you know somebody’s in default or if you know that the foreclosure is happening and the sales very far away as a realtor, sometimes that’s an opportunity to get a listing, right? Hey, Mr. Homeowner, yo, the bank, 300,000, your house is worth 400,000. If you sit and do nothing and you let this foreclosure happen, sale the clerk’s at the clerk’s office on the online portal, that’s not going to yield the highest and best result. Those are investors that are and very sophisticated investors. Your buyer pool is very, very small, but if you list the property with me and you allow me to show the property, let’s get you as close to that $400,000 that it’s worth. And I’m not even talking about now, in the last two years, the seller’s market where a lot of times there’s equity to protect, but even before this, there might’ve been equity to protect.
And if you do nothing, you’re going to lose all your equity. But if you list, and maybe we get you top dollar because we’re showing and because we’re marketing, then you could pay off your creditors and keep whatever equity. If you could walk out of this with $30,000, that’s so much better than walking out with nothing. But a lot of these people in foreclosures, they just put their head in the sand and they’ve given up and they’ve resigned and they don’t want to do anything. And on the good side, sometimes they can live for another year or two or four rent free. But in reality, if you’re giving up a good portion of your equity, I don’t know if you’re living rent free. So as a real estate agent, if you can find those people and try to get the listing, that could be a good tool. Although sometimes people are so underwater with their first or second
Staci Garcia:
Mortgage, well, that’s another thing. There’s a whole market of people who are opportunistic and they don’t really want to come in and take the house away from the person, but they wouldn’t mind owning the property as well. So they’re the hard money people who want to come in and help a homeowner and give them a little bit of a breath, if you will, and then let them live there for a certain amount of time and then take, they’ll be the owner of the house and make it worthwhile for the owner to exit stage, and then they’ll take over. So there was a large market of people who became, I don’t want to say slumlords, but they owned a lot of foreclosure, potentially foreclosure properties, and they put them up for rent and ended up owning a lot of properties. They had the cash to keep them going. So that’s another thing though. If you are doing it on your own and you don’t have any help and you don’t really know the market, you could be really burying yourself.
Matthew Maschler:
Absolutely. People have made big, big mistakes at these foreclosure sales, and the easiest one to make is buying one where it’s the HOA that is the plaintiff, and the property is still subject to a first mortgage, but you don’t always want to stay away from, don’t automatically stay away from the HOA foreclosures because there are times when people own a house for cash and for whatever reason, don’t pay the HOA and end the HOA foreclosures. I know of a friend of mine that bought a property up in Palm Beach Island, and there was no mortgage, and the person lived, I guess it was a second house. So the person passed away, but nobody really knew in the building. That person passed away. All they knew is that they didn’t pay their HOA, the HOA foreclosed. And this person I know became the buyer. You actually get to own anything in the property. If there’s a television in the property after foreclosure, if the television in the property, that’s your television car, no, because cars have separate titles. So if there’s a car in the garage, I don’t think you actually get to own the car, but a jet ski or a lawnmower or snowblower, there’s a lot of snowblowers in Florida. Cash jewels money.
Staci Garcia:
Last week when I broke into the foreclosure to check it out and see what was in there, there was a garage full of lawn furniture. I was like, lawn furniture. Awesome. But also you could tell people were squatting on the property for some time, and there’s mold and it’s not ideal. It comes with a lot of other issues. There was no roof. But also you can see when you’re buying, did you say no
Matthew Maschler:
Roof?
Staci Garcia:
No roof,
Matthew Maschler:
Like a convertible?
Staci Garcia:
No, it was a tarp on the roof. But also you can see these are the things that are good because you can actually see from the outside of the house, there is no roof. So going in, you’re going to be buying a roof on it.
Matthew Maschler:
There’s a house. There was a house in the lock for years and years and years that had a bad roof. And it would always show up on every couple of months. It would show up on the foreclosure sales, and every couple of months they’d somehow get a delight or something. It went on for years, but every time it got scheduled for sale and people were out with their knives because getting that property in the lock, take it down and build something because it was all rotten and whatnot. In my opinion, it wasn’t the best lot. Didn’t have huge lake views, and that’s what LA Lock is known for. So I was against bidding on it, although if you did that and brought it to market in this market, you’d make a lot
Staci Garcia:
Of money. Do you have your own helipad or
Matthew Maschler:
No, A runway, no helipads in the lock. There’s a story that John Henry landed a helicopter and the HOA shut that down pretty quickly. I, I think he sold it. I know it was for sale a couple of years back. I don’t think he still owns it, but it was a beautiful house he had.
Staci Garcia:
So I do spend a lot of time, and the auction starts at 10:00 AM and it’s online at the Palm Beach County real foreclose website. And it’s very entertaining. You can see what’s going on in real time. And so also, I mean, if the numbers aren’t hidden, you can see what the plaintiff of the bank is going to pay for their own house. And sometimes it’s surprising. Yesterday I spent an hour watching just in the background of my day, watching people bid against each other on a house in Boca Falls. And that one went, they had a $437,000 offer. The bank was going to pay, and it kept every last minute. It kept renewing for a minute, which means that they kept bidding and it was already up at $880,000 at some point with a five bedroom, three bathroom, Boca Falls house. I just enjoy watching it because I know, and I’m rooting for it. I’m rooting for the house. I know that everyone on the street wants the house to go up in value and they want their property values to stay high.
And of course, everyone, it’s not just an invisible house like a monopoly. It’s a real house on a real street, and they want someone living there. So when we did go check out the house that my client bought out of foreclosure, the neighbor walked up right away and said, what’s going on? Do you guys know what’s going on in the house? Did anyone buy it? What’s going on for two years? Been sitting there with no roof. Nobody wants that on their street. So it’s a real house, real potential. And for someone to come in and save it and rescue it, it’s like, I don’t know. It makes you feel good. Someone’s going to give life to it. So all of the properties that are in foreclosure, it’s like a sad thing. My client and I, it’s opportunistic, but also it’s also a really good thing because someone’s going to come in and start all over again and give it life.
Matthew Maschler:
And that’s how I took it when I was doing my foreclosures. It’s an important part of the market. Banks would not lend if they did not have the ability to foreclose, right? A bank wouldn’t lend if the punishment for not paying your loan back was nothing, right? So as long as the banks have a security interest, as long as they have the ability to repossess the house, they’ll be lending. And if banks didn’t lend and people couldn’t afford to buy houses, so they’d end up renting and the rich would own all the houses and the poor would rent from them, and the rich would get richer. And so banking is a very important part of the US economy, and foreclosure is an important part of that. And you need buyers. You need buyers to come to the foreclosure sale and do the work. If you have a property that’s in Dispair, you need flippers, and you need people to come in and take care of the lawn, paint the house, make it nice, because otherwise you would have these major, major blights out there.
So I think I used up all my words. One of the points of the podcast is I need to get my words out. And Stacey and I have been talking about foreclosures for years and years. If you want to watch a great movie on the subject, there’s a movie called The Big Short, and it was about all the foreclosures that happened out here in Florida during the Great Recession, and it was an interesting and real movie. And we have this club’s like the Bo Raton Real Estate Investment Club. So shout out to David Dweck. He’s one of my teachers, one of the people I go to when I need information about distressed properties and a great resource for people who want to get into flipping and lending or borrowing to buy these properties at foreclosure, because you can’t finance when you buy a property from a foreclosure sale. So if you have a private lender, like a David Dweck behind you, so you can afford to purchase these properties and make them nice and sell them, there’s a pretty good business opportunity to be made for that. So we’ve gone through a lot of foreclosures and fix and flips and distressed sales and over the years, over on the Real Estate Finder team. And we have a lot of great experience with that. And then we’re always diligently looking, and there’s ways to find investment properties and real estate owned.
And if you’re an investor, even finding things on the MLS, you can find them. I found a property on Glades Road right by the fire station two years ago that was listed for sale on the MLS, and I was able to buy it under market, and that was before the crazy run-up in prices. So that was a very, very good investment for me, and I have a good tenant in there. And yeah, there’s lots of ways of making money in real estate and real estate investing and buying foreclosures from the foreclosure sale or REO is a great tool to use if you’re sophisticated and willing to do the work, physical work to the house and legal work involved in perfecting the title and securing the house and evicting. And I had a property law professor when I was in law school, 19 94, 19 90. I graduated in 97, and he knew it was so weird, have these conversations with him, and he taught contracts, so it wasn’t property loans.
He took contracts. It was Professor Hunt, and we would talk about mortgage foreclosures, and he’d look at me, and a lot of professors are liberal law school professors are liberal. And I used to lend money even back then through a business that my father had, and I’d ask some questions about contract law, and he’d be like, well, how will you feel when you’re at the sheriff at the county steps and you’re foreclosing and you see the family there? And I said, professor, the system doesn’t work if you can’t honor your contracts. I mean, you teach contract law, right? People are obligated to the contractual terms. And if there was no punishment for breaking, I say punishment, it really should be penalty. But if there’s no consequence to breaking the contract, then no contracts are enforceable. So how will I feel? I’ll feel the system’s working, and I’ll think of you and I’ll smile. Yeah. But I was curious how I’d feel. I feel fine.
Staci Garcia:
My client asked me, we discuss this pretty often. Do you feel bad that you’re taking advantage? It’s not really taking advantage because I’ve look at it like the property is in distress and the people are having a hard time. If there are people having a hard time, sometimes there’s actually no person.
Matthew Maschler:
Sometimes there’s nobody living in the house. They’ve gotten the notices of foreclosure and they’ve left.
Staci Garcia:
So I feel like I’m giving a new life to the property, and I’m pretty excited about it.
Matthew Maschler:
Yeah. Something I want to say about tenants. If you’re renting a property and you find out that your landlord is in foreclosure, don’t worry about it. Don’t worry about it, don’t stress about it, and don’t do anything differently. A lot of tenants think they have to leave, but you have a lease, and your lease is you have property rights in the property, and you have the right to live there pursuant to the lease. A lot of tenants get mad. They feel that if they’re paying their rent, how come their landlord’s not paying their bank? My answer to that is, that’s none of your damn business. Pay your rent. The landlord will get theirs. They’re losing a lot of equity. And look, if the landlord is in foreclosure and walked away from the property, that’s their right to do. Continue to pay your rent, continue to live in the property after the foreclosure.
The new owner is required to honor your lease, unless they can find a deficiency in your lease, but they’re required to honor their lease. And if it’s a private investor, not the bank, they’ll be happy to just sit back, collect the rents, and wait until your lease is up and even possibly renew your lease. If it’s the bank, just you respond accordingly. Sometimes the banks will have no idea that they even own a property, but in that case, don’t pay the old landlord after the sheriff sell. They don’t own it anymore, but just sit back and let your lease expire. And I don’t know, I would probably, I don’t know if I was being cheeky, I couldn’t advise somebody to do this, but if you’re not hearing anything from the bank and you end up going month to month, pay the HOA so that way they don’t turn off your gate code and take away your HOA privileges. Actually, that’s important. Also, if your landlord is in foreclosure and they’re not paying the HOA, I would talk to a lawyer about if you can pay the HOA directly that way, again,
Staci Garcia:
Does that also apply for the taxes? Because some people come along and they pay other people’s taxes.
Matthew Maschler:
Well, those are people who are trying to buy the property. As a tenant, you don’t want to pay your landlord’s taxes, but there are tax deeded sales. I’m less familiar with the tax deeded, but basically, if you own property, you have to pay your real estate taxes every year. And if you don’t pay your real estate taxes, then the county doesn’t have money. The county can take an action against you. It’s not a foreclosure. It’s a tax deeded sale. So they can go after the property. But what they do is, because they’re not in the business of it, of going after homeowners and flipping houses, what they ended up doing is they end up selling the lien. They’ll sell the lien to a private investor. And then I step in the county’s shoes. Now the person owes the taxes to me because paid the county the taxes. Do you
Staci Garcia:
End up first in line?
Matthew Maschler:
Oh, yeah. Yeah. The tax lien is superior to the mortgages. Right. Okay. So there’s a
Staci Garcia:
Whole group of people that would
Matthew Maschler:
Be, there’s a whole nother subset of investors that aren’t buying in foreclosure, that are buying at tax deed sale. And what happens is you are an interest. So whatever you paid for the lien, you earn interest. And I think it’s three a half years later, you’re allowed to foreclose
Staci Garcia:
And you’re first
Matthew Maschler:
In line. So if the, oh, yeah, because the taxi distinguishes all the other liens. So in those three and a half years, if the homeowner makes good with you, you get your money back with interest. Or if they sell the property, eventually you get your money back with interest. Most of the time when you buy the tax, most of the people who are buying tax deeds, it’s an income stream play, not a fix and flip play, but their worst case scenario is getting the property at a hugely, hugely discounted rate, which is a grand slam, not a home run. It’s a grand slam, but it’s not to be expected. At some point in the three and a half years, the taxpayer will make good on their taxes because they’ll refinance or they’ll sell their house, or the first mortgage holder will buy it because the first mortgage holder doesn’t want to be relieved. So the first mortgage holder, three and a half years is enough time for that first mortgage holder to go through their foreclosure. I haven’t looked at tax deeds in a very, very long time. If I’m wrong, about that three and a half years, I apologize.
But yeah, that’s the basic play there. And then the county gets their money so they’re happy, and then the investor gets paid, so they’re happy.
Staci Garcia:
Yeah, I mean, as you’re looking at the property appraiser site, there is a warning. It’ll come up in a different color. It says that this homeowner has not paid their taxes, they’re deficient, and it’s more like an alert. And in that case, you would check and see for all the people that are in line for this house with the bank, the HOA would also be anyone else that had paid their taxes. Obviously, the person hasn’t paid their taxes, but I think there’s a lot of information to look at. And then I find myself thinking, okay, well, they haven’t paid their taxes. What else haven’t they paid? And it starts to add up. So there’s just a lot of work to be done when you’re trying to make sure you buy a property and you’re not, there was one person who bought the area between two properties a couple of years ago. They weren’t aware, and they bought it at the auction, and they bought, I think it was an easement between two townhouses. I don’t know what the repercussions are on that one, if they could turn around, but there’s no refunds. So they ended up with a piece of grass. I feel bad about that, but that’s a good incentive to do your homework, and there’s a lot of information to look at and make sure that you’re aware of. And I wouldn’t even consider buying at an auction unless you’re completely familiar with the area.
Matthew Maschler:
A hundred percent. Buyer
Staci Garcia:
Beware.
Matthew Maschler:
So if you enjoy this podcast, I’m glad that you joined us, and I hope I explained foreclosures 1 0 1. And feel free to call us or email us or go on our social media. My website is realestate finder.com. On Facebook, you can find the Real Estate Finder podcast or reach out to me, Matthew Ashler Real Estate Broker. I do want to say on this Monday, the 17th, it’s coming up in a few days, but on Monday the 17th, my other podcast, the Matthew Mania Podcast, will be broadcasting live from the Beer Garden restaurant in Boca Raton. It’s on Federal Highway in the Royal Palm Plaza, or for you, old Boca Peeps, the Pink Plaza, Matthew Mania. Join us for the live Matthew Mania podcast this Monday, the 17th. And even if you can’t make it, if you’re curious, if you just want to hear more from me, but in a more casual setting, more personal setting, the Matthew Mania Podcast is When people travel for business or pleasure.
This is business, my Real Estate Finder podcast. That one’s more pleasure. We talk about wrestling and rock and roll music, and whatever fun things we’re doing and charitable events that we’re doing. So live on Monday, the Matthew Mania Podcast from the Beer Garden Restaurant in Boca Raton. Or just join us on the Matthew Mania Podcast. And if you enjoy the Real Estate Finder podcast, please follow us and give us good reviews and feedback on whatever podcast player you’re on. I am getting great feedback from people. They’re enjoying the show, they have interesting topics, and they’re submitting topics that they want to talk about. And if you want to be a guest on the show, please reach out. Stacy, anything you want to add?
Staci Garcia:
No. If you want to sell a property, give me a call or text
Matthew Maschler:
Me. Yes. If you need a great real estate agent in Boca Raton or the surrounding areas, stacy@realestatefinder.com. No, HOA boca.com. See, I want to start, no KNOW. I still
Staci Garcia:
Have
Matthew Maschler:
No, but I want to have it as a separate competing site. KNOW. No, as knowledge, right? If you want to know your H hoa, yeah. If you want to get information about your HOA, you won’t need no HOA. But if you don’t want an HOA, if you don’t want to work in an HOA community, then you need no HOA true. So there’s no HOA and then there’s no HOA Matthew Ashler. That’s not the one that I meant to press. All right, we’re going to try again. Matthew Ashler,
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